Tips When Raising a Seed Round

The Option Pool Lowers your Effective Valuation

“Good” Social Proof

Babak Nivi Co-Founder AngelList and Venture Hacks and angel investor

“Social proof is when you do something because other people are doing it. []

In this context, social proof is looking at what other investors, entrepreneurs, and advisors are doing. Customers don't count.

I'll disagree with Naval Ravikant [Co-Founder AngelList and Venture Hacks] on "An investor is choosing not to invest in your company and is making the introduction for you". I don't think this is as bad as he makes it out to be.

[] [The] logical part of your brain will ask why the investor is passing. And there's often a good reason: wrong market, wrong stage, wrong geography, bad chemistry with entrepreneur, some known risks that the investor doesn't want to take, etc.

Rejecting a deal just because a peer rejected it is mathematically unsound. Here's the proof. Every deal you ever invested in was probably rejected by a peer at around the same time you made the investment. So, if your criterion is that you will reject deals that peers reject, you will never make any investments.” Babak Nivi, What is good social proof? Aug. 20, 2010; http://www.quora.com/What-is-good-social-proof

Babak Nivi Co-Founder AngelList and Venture Hacks and angel investor

Nivi says “the biggest mistake entrepreneurs make when [] raising money” is that “[they] focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions. (Protective provisions let preferred shareholders veto certain actions, such as selling the company or raising capital.)

Valuation is temporary, control is forever. For example, the valuation of [a] company is irrelevant if the board terminates [the founder] and [he] [loses his] unvested stock.

The easiest way to maintain control of a startup is to create good alternatives while [] raising money. If [the founder is] not willing to walk away from a deal, [he] won’t get a good deal. Great alternatives make it easy to walk away.

Create alternatives by focusing on fund-raising: pitch and negotiate with all [] prospective investors at once. This may seem obvious but entrepreneurs often meet investors one-after-another, instead of all-at-once.